Core Viewpoint - ZTO Express Cayman Inc. is experiencing significant challenges due to escalating operating expenses and weak financial stability, making it an unattractive investment option for investors' portfolios [1] Financial Performance - The Zacks Consensus Estimate for current-year earnings has been revised downward by 1.7% over the past 60 days, with a 0.5% decrease for the next year, indicating a lack of confidence from brokers [2] - ZTO shares have declined by 5.7% over the past year, contrasting with a 5.9% rise in the industry [2] Industry Ranking - ZTO currently holds a Zacks Rank of 4 (Sell) and belongs to an industry with a Zacks Industry Rank of 191 out of 251, placing it in the bottom 24% of Zacks Industries [3] Operating Expenses - In Q2 2024, total operating expenses increased by 5% year over year, primarily due to a 17.5% rise in labor costs, totaling $683.7 million [4][5] - General supplies and expenses rose by 15% to $81.6 million, while interest expenses increased to $15.94 million during the same period [5] Competitive Landscape - The domestic express delivery market is highly competitive, with major players like SF Express and STO Express, which could further pressure ZTO's stock price if competition intensifies [6]

Core Viewpoint - ZTO Express (Cayman) Inc. is rated as a Hold, with expectations of mixed third-quarter performance characterized by top-line growth acceleration but weaker profitability [1] Company Summary - ZTO Express is expected to report an acceleration in top-line growth for the third quarter [1] - Profitability is anticipated to be weaker compared to previous periods [1] Industry Summary - The analysis focuses on value investing opportunities in Asia, particularly in the Hong Kong market, emphasizing deep value balance sheet bargains and wide moat stocks [1]

Core Insights - ZTO Express (Cayman) Inc. has seen a 5.2% increase in shares since the last earnings report, outperforming the S&P 500 [1] Financial Performance - For Q2 2024, ZTO Express reported earnings of 47 cents per share, an improvement year over year, with total revenues reaching $1.475 billion [2] - The core express delivery business revenues grew by 10.4% year over year, driven by a 10.1% increase in parcel volume and stable parcel unit prices [3] - KA revenues surged by 73.9%, reflecting a growing proportion of higher-value customers [3] - Revenues from freight forwarding services declined by 2.4% year over year [3] - Accessory sales, primarily thermal paper for digital waybills, increased by 24.1% year over year [3] - Gross profit rose by 9.6% compared to the previous year, although the gross margin rate slightly decreased to 33.8% from 33.9% [3] Operating Expenses and Cash Position - Total operating expenses were reported at RMB405.3 million ($55.8 million), down from RMB425.7 million in the previous year [4] - Cash and cash equivalents at the end of Q2 2024 stood at RMB10.54 billion, a decrease from RMB12.58 billion at the end of Q1 2024 [4] Future Guidance - ZTO Express anticipates parcel volumes for 2024 to be between 34.73 billion and 35.64 billion, indicating a year-over-year increase of 15-18% [5] Analyst Reactions - There have been no earnings estimate revisions from analysts in the past two months [6]

Financial Performance - Revenue for the six months ended June 30, 2023, was RMB 18,723,563, an increase of 10.5% compared to RMB 20,685,970 for the same period in 2024[11] - Operating costs increased by 9.1% from RMB 12,895,730 to RMB 14,063,408 during the same period[11] - Gross profit rose by 13.6% from RMB 5,827,833 to RMB 6,622,562[11] - Net profit decreased by 3.2% from RMB 4,195,034 to RMB 4,061,744[11] - Adjusted EBITDA increased by 4.0% from RMB 6,761,106 to RMB 7,034,205[11] - Adjusted net profit grew by 13.0% from RMB 4,450,774 to RMB 5,029,768[11] - Basic earnings per American Depositary Share (ADS) increased by 12.5% from RMB 5.52 to RMB 6.21[11] - Diluted earnings per ADS rose by 12.2% from RMB 5.40 to RMB 6.06[11] - Net profit for the six months ended June 30, 2024, was RMB 4,061,744, a decrease of 3.2% from RMB 4,195,034 for the same period in 2023[14] - Adjusted net profit increased to RMB 5,029,768 for the six months ended June 30, 2024, representing a growth of 13% compared to RMB 4,450,774 in the previous year[14] - Total revenue for the six months ended June 30, 2024, reached RMB 20,685,970, an increase from RMB 18,723,563 for the same period in 2023, representing a growth of approximately 10.4%[90] - Gross profit for the six months ended June 30, 2024, was RMB 6,622,562, compared to RMB 5,827,833 for the same period in 2023, indicating a gross margin improvement[90] - Operating profit for the six months ended June 30, 2024, was RMB 5,481,898, up from RMB 4,829,217 in the same period of 2023, reflecting a year-over-year increase of about 13.5%[90] - The net profit attributable to ZTO Express (Cayman) Inc. for the six months ended June 30, 2024, was RMB 4,037,848, compared to RMB 4,211,540 for the same period in 2023, showing a slight decrease of approximately 4.1%[90] Operational Efficiency - The company aims to enhance operational efficiency and expand market presence through strategic initiatives[13] - Future outlook includes continued investment in technology and potential market expansion opportunities[13] - The company processed over 31,000 collection and delivery points and more than 110,000 terminal stations across China as of June 30, 2024[19] - The logistics infrastructure includes 96 sorting centers and 515 automated sorting lines, supported by approximately 10,000 self-operated trunk trucks[20] - Investment in sorting centers and trunk transportation fleet is ongoing to improve package processing capacity and address logistics bottlenecks[20] - The company continues to seek network expansion by connecting with new qualified partners and enhancing service capabilities[19] - The company aims to expand its service offerings to create a comprehensive logistics ecosystem, including express delivery, less-than-truckload (LTL) services, and cross-border logistics[18] - The company is actively enhancing its technological infrastructure to support smart logistics, aiming to reduce comprehensive unit costs for sorting and transportation by June 30, 2024, compared to the same period in 2023[22] - The company has implemented over 515 automated sorting devices as of June 30, 2024, compared to 460 devices a year earlier, improving overall sorting efficiency[31] Financial Position - Cash and cash equivalents, restricted cash, and short-term investments totaled RMB 10,542.1 million, RMB 22.3 million, and RMB 9,898.8 million respectively as of June 30, 2024[41] - The company had outstanding bank borrowings of RMB 10,390.8 million as of June 30, 2024, with a weighted average interest rate of 1.8%[41] - The company recorded an investment impairment of RMB 672.8 million primarily due to the acquisition offer from Alibaba Group for Cainiao Smart Logistics Network[38] - Foreign exchange gains decreased by 71.0% from RMB 70.9 million to RMB 20.6 million, attributed to the appreciation of the RMB against USD[38] - The effective tax rate increased by 3.6 percentage points, with income tax expenses rising by 19.5% from RMB 1,030.6 million to RMB 1,231.3 million[39] - As of June 30, 2024, the total capital expenditure for the six months was approximately RMB 3 billion, a decrease from RMB 4.5 billion for the same period in 2023[46] - The company's capital commitments amounted to RMB 4.4 billion as of June 30, 2024, primarily related to the construction of office buildings, sorting centers, and warehouse facilities[46] - The total employee count was 23,906 as of June 30, 2024, with sorting staff making up 31.8% and transportation staff 15.0% of the total[47] - Employee compensation costs for the six months ended June 30, 2024, totaled RMB 1,717.8 million, compared to RMB 1,576.4 million for the same period in 2023, reflecting an increase of approximately 8.9%[47] Shareholder Returns - The company approved an interim dividend of $0.35 per American Depositary Share and ordinary share for the six months ending June 30, 2024, with a payout ratio of 40%[80] - The company plans to pay the interim dividend to shareholders on October 10, 2024, for ordinary shares and on October 17, 2024, for American Depositary Shares[80] - The board approved a dividend of $0.35 per share for the six months ended June 30, 2024, reflecting the company's ongoing commitment to returning value to shareholders[142] Corporate Governance - The company has complied with all provisions of the Corporate Governance Code, except for the separation of the roles of Chairman and CEO, which are currently held by the same individual[55] - The Board believes that the current arrangement does not impair the balance of power and authority, allowing for swift and effective decision-making[56] - The Audit Committee has been established in accordance with the listing rules and consists of two independent non-executive directors and one non-executive director[59] - The Audit Committee is responsible for overseeing the company's accounting and financial reporting processes, including the appointment of independent auditors[60] - The company has adopted a securities trading code to regulate all securities transactions by its directors and relevant employees[57] - The company has established four committees to oversee specific aspects of its affairs, including the Audit Committee, Remuneration Committee, Nomination and Corporate Governance Committee, and Environmental, Social, and Governance Committee[58] Market Strategy - The company plans to expand its market presence and enhance product offerings in the upcoming quarters[146] - The company has initiated new product development strategies aimed at increasing market share and customer engagement[146] - The company is exploring potential mergers and acquisitions to strengthen its competitive position in the market[146] - The future outlook remains positive, with guidance suggesting continued revenue growth and profitability improvements[146] - The company is expanding its market presence, with plans to enter three new international markets by the end of the fiscal year[148] - A recent acquisition of a logistics firm is expected to enhance operational efficiency, projected to reduce costs by 5% annually[148] Compliance and Risk Management - The company is committed to sustainable development and has been actively enhancing its corporate governance capabilities in compliance and risk control[23] - The company has not utilized derivative financial instruments to manage interest rate risks, indicating a conservative approach to financial risk management[45] - The company does not anticipate significant impact from ongoing legal or administrative proceedings, and no provisions have been made for potential fines or interest related to employee welfare contributions[144] Future Outlook - The company provided a future outlook, projecting a revenue growth of 10% for the next quarter, targeting RMB 11,909,475[148] - The company plans to implement new strategies focusing on sustainability, aiming for a 30% reduction in carbon emissions by 2025[148]

ZTO Express Cayman Inc.’s (ZTO) financial stability is challenged by escalated operating expenses. Elevated labor costs are further putting a strain on the company’s bottom line, thereby making it an unattractive choice for investors’ portfolios.Let’s delve deeper.Weak Zacks Rank: ZTO currently carries a Zacks Rank #4 (Sell).Unimpressive Price Performance: ZTO Express’ shares have plunged 15.6% in the past year compared with its industry’s 7.8% decline.Image Source: Zacks Investment ResearchBearish Industry ...

Investment Rating - The report maintains a "Buy" rating for the company, citing its ability to balance volume and price in a competitive market environment [6] Core Views - The company reported H1 2024 revenue of RMB 206.9 billion, up 10.5% YoY, with adjusted net profit attributable to ordinary shareholders increasing 12.1% YoY to RMB 50.1 billion [3] - In Q2 2024, revenue grew 10.1% YoY to RMB 107.3 billion, with adjusted net profit up 9.2% YoY to RMB 27.8 billion [3] - The company's parcel volume grew 11.8% YoY in H1 2024, with Q2 growth at 10.1%, while average revenue per parcel declined slightly by 1.7% to RMB 1.22 [4] - Gross profit increased 13.6% YoY to RMB 66.2 billion in H1 2024, with gross margin improving by 0.9 percentage points to 32.0% [4] - Operating expenses rose 15.4% YoY to RMB 14.9 billion in H1 2024, while financial expenses improved [5] - The company expects full-year parcel volume growth of 15-18% and forecasts net profit attributable to shareholders of RMB 97.7 billion, RMB 110.6 billion, and RMB 123.5 billion for 2024-2026, representing YoY growth of 11.7%, 13.2%, and 11.6% respectively [6] Financial Performance Summary - The company's 2024-2026 revenue is projected to grow at a CAGR of 10.2%, reaching RMB 514.3 billion by 2026 [7] - EBITDA is expected to increase from RMB 102.8 billion in 2024 to RMB 182.9 billion in 2026 [7] - EPS is forecasted to grow from RMB 10.83 in 2023 to RMB 15.20 in 2026 [7] - The company's P/E ratio is expected to decline from 12.2X in 2024 to 9.7X in 2026, while P/B ratio is projected to decrease from 1.81X to 1.49X over the same period [7] - ROE is anticipated to improve from 14.87% in 2024 to 15.47% in 2026 [8] Operational Efficiency - The company achieved a 6.7% YoY reduction in per-parcel transportation costs in H1 2024, driven by scale effects [4] - Sorting center costs per parcel increased 4.6% YoY in Q2 2024 due to automation equipment upgrades [4] - The company's asset-liability ratio stood at 33.07% as of the latest reporting period [1] Market Position and Strategy - The company has maintained stable pricing despite industry competition, focusing on value over volume [4] - As a leading e-commerce logistics provider, the company is well-positioned to benefit from industry growth and cost efficiency improvements [6] - The company's strategy of avoiding loss-making parcels has contributed to its stable financial performance [4]

Investment Rating - The report maintains a "Buy" rating for ZTO Express (02057) as of August 23, 2024 [1] Core Views - ZTO Express achieved a business volume of 15.623 billion parcels in H1 2024, representing a year-on-year growth of 11.80%, with a market share of 19.49% [1][3] - The company is focusing on enhancing service quality and optimizing its business structure, which is expected to lead to a significant increase in high-value parcel volume by the end of the year [4][6] - The report anticipates a revenue growth of 12% to 13% for the years 2024 to 2026, with net profit growth projected at 15% to 23% during the same period [8][9] Summary by Sections Business Performance - In Q2 2024, ZTO Express reported a business volume of 8.452 billion parcels, a 10.10% increase year-on-year, with a market share of 19.63% [1][3] - The company achieved a revenue of 20.686 billion yuan in H1 2024, a 10.48% increase year-on-year, with core express service revenue of 19.116 billion yuan, up 9.94% [3] Cost Management - ZTO Express reported a record low core cost per parcel of 0.65 yuan in Q2 2024, down 0.02 yuan year-on-year, attributed to improved operational efficiency and resource utilization [6][8] - The company is implementing cost reduction projects such as "Direct Delivery" and "Three-Network Integration," which are expected to further decrease overall costs [7][8] Future Outlook - The company has set a business volume growth target of 15% to 18% for 2024, with expectations for accelerated growth in H2 2024 [6][8] - ZTO Express is projected to achieve revenues of 429.76 billion yuan, 484.31 billion yuan, and 545.56 billion yuan for the years 2024, 2025, and 2026, respectively [9]

Investment Rating - The investment rating for ZTO Express (02057) is "Buy" (maintained) [6] Core Insights - In H1 2024, the company achieved revenue of 20.69 billion yuan, a year-on-year increase of 10.5%, and adjusted net profit of 5.01 billion yuan, up 12.1% year-on-year. In Q2 2024, revenue was 10.73 billion yuan, with a year-on-year growth of 10.1%, and adjusted net profit reached 2.81 billion yuan, growing 10.9% year-on-year [3][10] - The company maintained a mid-term dividend of 0.35 USD per American Depositary Share and common stock, corresponding to a payout ratio of 40% [10] - In Q2 2024, the express delivery volume increased by 10.1% year-on-year, with a market share of 19.6% [10] - The company’s core express business revenue per ticket was 1.24 yuan, remaining flat year-on-year, benefiting from an increase in high-value non-e-commerce packages [10] - The core cost per ticket decreased by 0.02 yuan year-on-year, with a decline in transportation costs by 0.03 yuan to 0.39 yuan, a decrease of 6.8% [10] - The company maintains a business volume growth guidance of 15%-18% for 2024, expecting package volume to be approximately 34.73 billion to 35.64 billion pieces [10] - Revenue forecasts for 2024-2026 are 43.96 billion, 49.37 billion, and 54.54 billion yuan, with corresponding growth rates of 14.43%, 12.29%, and 10.48% [11] Financial Data Summary - Total revenue for 2024 is projected at 43.96 billion yuan, with a net profit of 10.25 billion yuan, and EPS of 12.61 yuan [11] - The company’s asset-liability ratio is 35.03% [6] - The current share price is 165.50 HKD, with a market capitalization of approximately 133.50 billion HKD [6]

Investment Rating - The report maintains a "Strong Buy" rating for ZTO Express (02057.HK) [4][9][15] Core Views - ZTO Express achieved a business volume of 15.62 billion pieces in the first half of 2024, representing a year-on-year growth of 11.8%. The second quarter saw a business volume of 8.45 billion pieces, up 10.1% year-on-year [2][3] - The company's market share decreased from 21.6% to 19.6% year-on-year in Q2, as ZTO prioritized revenue quality over volume, leading to slower growth compared to the industry average [2][3] - Despite a decline in market share, ZTO's revenue quality improved, with Q2 single-ticket revenue slightly increasing to 1.24 CNY from 1.23 CNY year-on-year, indicating a focus on quality service [2][3] - The report anticipates a business volume growth rate of at least 18% in the second half of the year to meet the annual guidance of 15-18% growth [2][3] Financial Performance Summary - For the first half of 2024, ZTO reported a net profit attributable to shareholders of 4.04 billion CNY, a decrease of 4.1% year-on-year. Adjusted net profit was 5.03 billion CNY, up 13.0% year-on-year, primarily due to a 673 million CNY impairment charge on equity investments [2][3] - The report projects net profits for 2024-2026 to be 9.38 billion CNY, 11.72 billion CNY, and 13.37 billion CNY, respectively, with corresponding P/E ratios of 12.9X, 10.3X, and 9.0X [3][7] - The company maintains a balanced strategy of enhancing service quality, business scale, and profitability, which has led to a strong brand recognition and customer satisfaction [3][7] Cost and Profitability Analysis - In Q2, ZTO's single-ticket cost was 0.82 CNY, a slight increase of 0.7% year-on-year, with transportation costs decreasing by 6.8% to 0.39 CNY, while sorting costs rose by 4.6% to 0.26 CNY [2][3] - The report indicates that while single-ticket costs have stabilized, there is potential for further cost reduction as new equipment utilization increases with growing business volume [3][8]

J Studios/DigitalVision via Getty Images I last wrote about ZTO Express in an article published in June of this year. Back then, I was concerned about ZTO's market share loss and the ongoing price war in China's express delivery industry. Unfortunately, the trend continued in Q2 of 2024 as evidenced by ZTO's earnings results, which were released on August 20th after the bell. Faced with another quarter of market share loss, ZTO's management is determined to fight back. At the same time, management is also c ...